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FULL OF SCRAP It’s time to close the book on one era and open another

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Nucor Corp.'s decision to buy its scrap broker, David J. Joseph Co. (DJJ), came as no surprise. As I noted in a story following the steelmaker's announcement of the $1.44-billion deal in mid-February, it had been one of the longest marital engagements in the steel and scrap industries. DJJ has been Charlotte, N.C.-based Nucor's scrap buyer since the steelmaker was formed in 1969.

Unlike rival Steel Dynamics Inc., which bought major Midwest scrap processor and trader OmniSource Corp. last October, Nucor will not be oversupplied with scrap. DJJ has 12 shredders and 35 yards that can process more than 3.5 million tons of ferrous scrap, but that's only a fraction of the material that Nucor melts each year. The icon of the mini-mill industry is anything but mini, consuming 22.8 million tons of iron and steel scrap last year. DJJ won't be able to feed Nucor's furnaces from its own yards, but its brokers managed to come up with about 20 million tons of scrap from other suppliers during 2007.

Others companies, like Commercials Metals Co., Irving, Texas, have a long history in both scrap processing and steelmaking. But the speed with which steel companies are buying up scrapyards today suggests that the scrap industry is a lot more valuable than its name would indicate.

The old timers in the scrap industry used to call it the "junk business," but that was a name that they used only among themselves. It was regarded a pejorative term when it was uttered by others not in the business, much as some of today's scrap recyclers cringe when labelled "scrappies." It's just a word, but it's not one they put much value on.

Many are still family or individually owned and operated, but except for a few big privately held companies like Alter Trading Corp. and Yaffe Cos. in the Midwest, and Carolinas Recycling Group LLC in the South, most are midsized to smaller yards. That was—and for the most part still is—the scrap business.

The scrap business has changed in the past 20 years and continues to change rapidly from the mom-and-pop businesses established at the start of the last century. Today, they are corporate entities. Some stretch from the Atlantic shore to the Pacific Coast—from sea to shining sea and, soon, beyond.

Some have become so large and diverse that their immigrant founders probably would not recognize the businesses they started years ago. The reasons for this success are manifold—some because of the skill and ingenuity of their founders and owners, some because they happen to be in a city or town where scrap steel from industry was more abundant. They were in the right places at the right times.

The first signs of the latest change came not in the mid 1990s but a few years earlier. Second- and third-generation family members who had run the yards founded by their fathers and grandfathers had grown old themselves, and many had no one in the family interested in taking over the business. They needed an exit strategy, and often the only deal to be made was with their competitors across town. Laughter would echo off the oak-paneled walls of their plush offices if you asked a steel or auto executive of the past if they would consider buying a scrapyard.

Their successors are not laughing, for the times have changed.

Ladd R. Hall, executive vice president of Nucor's Sheet Mill Group, exemplified that change in his speech to the Fabricators and Manufacturers Association conference in mid-February, less than a week after his company said it would plunk down the money for its scrap broker. "I think mills are trying to secure their raw material source so they can continue to try to stabilize a very, very volatile market," he told the audience. "The buzz phrase today is raw materials strategy, or what measures must be taken to make sure we have the raw materials we need to continue to grow."

Nucor's purchase of DJJ will not lead to lower scrap export volumes, Hall said, nor will it necessarily end all of the volatility in the market. But there was one prediction in his remarks. "You will continue to see Nucor and others consolidate their raw material sources, and it may not just be in scrap. It may be in scrap alternatives as well," he said.

No, scrapyards have not become the gold mines that some yard owners would tell you they are (if you should want to buy them). They have, however, become an integral part of the steel production system. Thank the inventors of the electric furnace and the entrepreneurial spirit of men like Kenneth Iverson and Marvin Selig, who carved a niche for the mini-mills in the steelmaking business, a niche that has since widened into an entire steel industry plateau.

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